October delivered a mixed picture across asset classes. Developed market equities, represented by the MSCI world index, advanced 2%, driven by optimism around trade negotiations and strong corporate earnings. Global bonds faced headwinds, with the Bloomberg Global Aggregate Bond Index slipping 0.3%. Credit was a drag on fixed income returns this month, with widening spreads in certain segments. The U.S. dollar regained strength after months of weakness, supported by recalibrated expectations for Federal Reserve policy and easing fiscal fears despite the ongoing government shutdown.
Late in the month, general market sentiment improved following a high-profile meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the APEC summit in Busan. The two leaders agreed to a one-year trade truce, which included a rollback of U.S. tariffs on Chinese goods from 57% to 47%, and in turn China suspending newly implemented export controls on rare earth minerals, which are an important component for AI and semiconductor supply chains. Additionally, China also committed to resume large-scale purchases of U.S. soybeans and agricultural products, as well as cooperate on curbing fentanyl precursor chemicals. This agreement eased fears of a trade war escalation, which earlier in October had triggered the sharpest single-day equity decline since April.
Global Growth stocks extended their outperformance, rising 4.2% versus a 0.5% dip for value stocks, based on their perspective MSCI indexes. The rally was fueled by continued investor enthusiasm for AI. Nvidia reached a staggering $5 trillion market capitalization. Cloud providers such as Microsoft, Amazon, and Alphabet also reported robust revenue growth tied to AI-driven activity. Interest rate-sensitive sectors struggled. The MSCI global small cap index remained relatively flat, with a 0.2% gain, while the MSCI global real estate (REIT) index fell 1.3%, pressured by higher financing costs and lingering uncertainty around property valuations.
Stocks and Commodities
The S&P 500 gained 2.3% for the month, recovering from early-month volatility triggered by renewed U.S.-China trade friction over rare earth mineral controls. Progress in negotiations later in October helped stabilize sentiment. Q3 earnings also delivered a strong aggregate positive surprise, out of the companies that reported as of November 2nd, 83% of them have beaten consensus estimates, well above the historical average. The earnings came in 6.4% above expectations, driven by technology, consumer discretionary, and healthcare sectors. The Magnificent Seven mega-cap tech stocks continued to dominate returns over the month, propelled by AI related demand and cloud infrastructure growth.
Canadian equities delivered a mostly positive sector performance in October, with the S&P/TSX Composite Index supported by strong gains in technology stocks, notably Shopify and Celestica. Shopify climbed nearly 17%, driven by optimism around its e-commerce growth, while Celestica surged over 37%, extending a strong year-to-date rally as demand for AI-related data center infrastructure boosted its outlook. In contrast, the Materials sector, particularly gold miners, retreated after months of exceptional gains, despite gold prices holding near historic highs above $4,300 per ounce. The pullback reflected profit taking from the heavy momentum seen recently, with major names like Franco-Nevada and Wheaton Precious Metals underperforming.
Japanese equities led global performance in local currency terms, with the TOPIX index reaching record highs. The surge was fueled by a historic political milestone: Sanae Takaichi became Japan’s first female Prime Minister and leader of the Liberal Democratic Party. Her platform, echoing the principles of Abenomics, emphasizes expansionary fiscal and monetary policies, targeted investments in AI, semiconductors, and defense. Investors interpreted this as a pro-growth signal, sparking what analysts dubbed the “Takaichi trade”, a rally in equities, rising bond yields, and a weaker yen, which further boosted export-oriented sectors.
The yen’s depreciation to multi-decade lows against the dollar amplified competitiveness for Japanese exporters, particularly in autos and electronics. However, some strategists caution that valuations are becoming stretched, with the Nikkei 225 surpassing 52,000 points and TOPIX climbing above 3,200. While optimism prevails, risks remain around inflation management and political fragmentation, as Takaichi governs with a fragile coalition.
The MSCI Asia ex-Japan index advanced 4.5%, supported by easing U.S-China trade tensions and robust demand for AI related hardware. Korea and Taiwan were standout performers, with their MSCI indexes surging 23% and 10%, respectively, as their semiconductor industries benefited from renewed access to rare earth minerals and expectations of sustained global investment in AI infrastructure. The October rally is a continuation of strong year-to-date gains across Asia, where the technology and industrial sectors continue to attract capital inflows.
In Emerging Markets, Argentina delivered one of the most dramatic moves globally, with the MSCI Argentina Index soaring 64% in October. The catalyst was President Javier Milei’s sweeping victory in midterm elections, who has a mandate for radical free-market reforms. Markets responded with a sharp peso appreciation and a 21% jump in the local Merval index, alongside double-digit gains in sovereign bonds. Milei’s win also unlocked a $40 billion U.S.-backed financial support package, easing default fears and fueling optimism for structural reforms in tax, labor, and foreign exchange.
In the UK, the FTSE All-Share index rose 3.7%, outperforming most developed peers. A .30% decline in Gilt yields provided relief to rate-sensitive sectors, while strength in industrial metals and energy supported the UK’s mining stocks. Additionally, sterling weakness enhanced the value of overseas earnings for multinational constituents, with the UK’s high export-based economy, this had a material impact. Positive global trade and AI sentiment also spilled over into UK-listed technology and financial services firms, giving them momentum over the month.
The MSCI Europe ex-UK Index rose 2.1%, lagging other developed markets. Performance was hampered by political uncertainty in France and the region’s limited exposure to commodities and AI-linked technology. Defensive sectors such as healthcare and consumer staples provided some cushion, but cyclicals underperformed amid muted growth expectations.
The Bloomberg Commodity Index posted a 2.9% gain over the month, segment performance varied. Industrial metals surged 4.8%, supported by optimism over infrastructure spending and easing trade tensions, while precious metals climbed 3.5% amid geopolitical uncertainty, sovereign debt concerns, and lowering interest rates. Gold briefly breached $4,300 per ounce, setting a record high before correcting, and silver touched $53.76 per ounce. Year-to-date, gold and silver have soared 52% and 69%, respectively. Palladium led gains within the precious metals complex, advancing over 13% in October. Energy markets were more subdued. Crude oil prices slipped 1.2%, despite a 6.4% rise in the broader energy sector driven by natural gas, which spiked nearly 25% on strong LNG demand from Europe.
Bonds
Global credit markets posted modest gains, with Bloomberg high yield index (+0.2%) outperforming the investment grade index (-0.1%). While there was widening in credit spreads across regions, from both high yield and investment grade bonds, the yield differential still managed to provide high yield bonds with a better total return. Spreads remain historically tight, leaving limited room for further compression.
U.S. inflation continued to surprise to the downside, with tariff-related price pressures further proving more muted than anticipated. Services and rent inflation both continued a downward trend in October, giving the Federal Reserve room to deliver its second consecutive .25% rate cut, lowering the federal funds target range to 3.75–4.00%. Chair Jerome Powell emphasized that a December cut is “not a foregone conclusion,” signaling a potential pause to assess the cumulative impact of recent easing. This hawkish tone prompted markets to scale back expectations for further cuts, removing nearly two more expected .25% reductions from bond pricing over the next year. However, in an expansionary tone, The Fed announced plans to halt quantitative tightening by December, citing liquidity concerns in short-term loan markets.
The Canadian fixed income market posted its second consecutive month of gains in October, supported by a modest decline in bond yields and a fragile economic backdrop. Government of Canada 10-year yields eased to around 3.12%, down from early-month highs, as softer growth data and dovish signals from the Bank of Canada drove demand for duration. The central bank cut its policy rate by .25% to 2.25%, citing weak exports, subdued business investment, and inflation near the 2% target, while hinting that further cuts may be unlikely unless conditions worsen. Economic indicators remain soft, updated GDP data was released at the end of October, with a contraction of -0.3% in August and expansion of 0.1% in September. The unemployment rate was also released for September and came in at a high level of 7.1%. Inflation edged up to 2.4% in October, mainly due to housing and energy costs. Credit markets also contributed to positive returns, with investment-grade spreads tightening and provincial bonds stabilizing, particularly in Alberta.
UK government bonds were the best performers among developed markets in October. The 10-year Gilt yield fell roughly .30%, supported by a dovish shift from Bank of England Governor Andrew Bailey. Softer inflation data and a more cautious tone on growth prompted markets to price in .60% of rate cuts by the end of 2026, higher than previous expectations. This move coincided with a slowdown in the pace of quantitative tightening, as the BOE reduced its gilt sales target to £70 billion for 2026, in an aim to minimize market disruption. The rally in Gilts also provided fiscal relief ahead of the Autumn Budget, giving the Treasury an estimated £5 billion in extra asset value.
Eurozone government bonds posted a +0.9% gain, aided by declining yields and narrowing spreads. Italy (+1.2%) and Spain (+0.9%) led performance, with 10-year yields falling .18% and .11%, respectively. In Germany, corporate bond spreads versus German Bunds tightened by approximately .10%, reflecting improved sentiment following the European Central Bank’s decision to maintain its policy-neutral stance. The ECB’s earlier rate cuts and stable inflation outlook have reinforced expectations of accommodative conditions into 2026, supporting market demand for credit.
Japanese government bonds were the laggards in October, as 10-year yields rose modestly amid growing expectations of further policy normalization by the Bank of Japan. Inflation has remained above the BOJ’s 2% target for over three years, and recent hawkish signals suggest a potential rate hike as early as December. The market is also pricing in increased bond supply under Prime Minister Sanae Takaichi’s expansive fiscal agenda, which includes infrastructure and defense spending. Japan’s yield curve steepened, with 30-year yields climbing to 3.3%, their highest level in 17 years. Japan now has the steepest yield curve among the G4 economies.
Emerging Market debt was the outperformer, delivering +2.2% for the month. The strength was driven by higher real yields. Many EM central banks began tightening cycles well ahead of their developed market counterparts, creating a meaningful rate differential that remains attractive as inflation moderates. This proactive stance has bolstered investor confidence in EM fundamentals, which continues to show resilience through improving fiscal government positions and healthy FX reserves of EM central banks.
Conclusion
While volatile, October ended with broadly positive results. Geopolitical tensions remain a focal point, but risk assets remained resilient. While the backdrop still supports a risk on approach, the intermonth rebound in U.S. equities, as well as rallying in other geographic regions to near record highs, suggests that a lot of good news is already priced in, leaving markets vulnerable to negative surprises. Because of this, maintaining a disciplined approach to diversification and downside protection is critical.
